10:59     SHANGHAI PECHEM<00338> - Announcement (13)                          

                    2002            2003            2004                      
                    (RMB million)   (RMB million)   (RMB million)             
                                                                              
    Aggregate       579             298             200                       
    design and                                                                
    construction                                                              
    fees the                                                                  
    Company paid                                                              
    to (i)                                                                    
    Shanghai                                                                  
    Petrochemical                                                             
    Engineering                                                               
    Company and                                                               
    (ii) Sinopec                                                              
    Design                                                                    
    College                                                                   
                                                                              
                                                                              
                                                                              
    The Company proposes to enter into the Comprehensive Services             
    Framework Agreement to continue to obtain design and construction         
    services from China Petrochemical Corporation and its associates for      
    the three years ending 31 December 2007.                                  
                                                                              
    Reasons for such transactions: The Company believes that Shanghai         
    Petrochemical Engineering Company and Sinopec Design College have         
    consistently been able to meet the Company's stringent demands for        
    highly technical design and construction specifications and timely        
    delivery of services. As the Company considers that having reliable       
    and co-operative service providers are important and beneficial to        
    the Company, obtaining services from Shanghai Petrochemical               
    Engineering Company and Sinopec Design College allows the Company to      
    secure essential control over its future developments and to ensure       
    timely completion of future projects while maintaining the requisite      
    quality.                                                                  
                                                                              
    Pricing: Pursuant to the Comprehensive Services Framework                 
    Agreement, the fees payable to China Petrochemical Corporation and        
    its associates in relation to the provision of design and                 
    construction services under the Comprehensive Services Framework          
    Agreement are priced according to the following pricing policies:         
                                                                              
    (a)                                                                       
    the pricing of the services shall be determined in accordance with        
    the prevailing market price (including any bidding prices); or            
                                                                              
    (b)                                                                       
    if there is no applicable prevailing market price, the services           
    shall be determined on a cost plus basis. The margin shall be fixed       
    at a rate not exceeding 6%.                                               
                                                                              
    The Company will settle the fees by way of cash payments.                 
    Caps: For the three years ending 31 December 2007, the annual fees        
    payable in relation to provision of design and construction services      
    to China Petrochemical Corporation and its associates shall not, in       
    aggregate, exceed the caps of RMB 412 million, RMB 280 million and        
    RMB 320 million, respectively.                                            
                                                                              
    The caps referred to above are determined with reference to:              
    (a)                                                                       
    the previous transactions conducted and transaction amounts in            
    respect of provision of design and construction services by China         
    Petrochemical Corporation and its associates;                             
                                                                              
    (b)                                                                       
    the Company's estimate of design and construction costs which are         
    required to satisfy its existing and future development; and              
                                                                              
    (c)                                                                       
    the Company's estimate of the increase in the market price of design      
    and construction services.                                                
                                                                              
    The Company notes that the estimated design and construction service      
    fees for the years ending 2005 are substantially higher than the          
    amount incurred in 2004 and the Company's estimates for 2006 and          
    2007. The Company is now in early stages of a new development which       
    involve the construction of a new 380,000 ton/year glycol facility.       
    The feasibility study report on the new project was approved by the       
    State Development and Reform Commission in July 2004. The PRC             
    approval process for the construction of the new facility is still        
    underway. The Company anticipates to incur additional design and          
    construction service fees associated with the construction of the         
    glycol facility and other facilities over the next three years,           
    substantially increasing the fees that were incurred in 2004. The         
    Company expects that a majority of the Company's construction and         
    design fees in relation to the construction of the 380,000 ton/year       
    glycol facility will be incurred in 2005.                                 
                                                                              
    Similarly, the Company has commenced construction of three other new      
    projects, namely, the `fifth-stage' project, which is a major             
    overhaul of existing facilities, the installation of new air              
    separation units throughout the Company's processing facilities and       
    the 3,300,000 ton/year hydrogenated diesel project. The requisite PRC     
    approvals for the initial implementation works of these projects have